As our accounts receivable have continued to grow, our major problem is our weak cash flow which has resulted in a serious going concern issue. Our working capital is not sufficient to support the operation of the Company and raises doubt about our ability to continue as a going concern. Recoverability of a major portion of our assets amounts is dependent upon the continued operation of the Company which, in turn, is dependent on the Company's ability to raise additional capital and secure financing. As such, we continue to explore, among other things, a strategic merger possibility and an offering and sale of equity. In the latter regard, on August 12th we filed a shelf registration statement with the Securities and Exchange Commission, which, if approved, would give us flexibility with respect to the possible sale of a variety of corporate equity and debt securities with an aggregate price of $6 million.

The Company is continuing to follow procedures with respect to remaining listed on the NYSE Amex, but can provide no assurance that it will be successful.

We are pressing ahead with our previously described plans for a strategic merger and/or a capital raise and/or a loan to resolve our cash flow problem. We believe we have made progress in this regard, but have not yet succeeded and cannot predict the final outcome of our various discussions. It is only with success in securing additional cash that we will be able to move forward with plans to strengthen operations. These plans include a focus on product sales in developing regions such as Africa and the introduction of new products that conform to consumer demand and the needs of China's telecom operators.

"While we are in a difficult struggle, we remain confident of a positive outcome and will keep shareholders informed of progress we may achieve."

Orsus Xelent Technologies reported that, as authorized by shareholders at the Company's annual meeting in December, the Company's board of directors approved a 1:12 reverse split of the Company's issued and outstanding shares which was to have been effected today. The Company learned late yesterday, however, that the necessary filings to effectuate the reverse split could not be completed, resulting in what the Company believes is a temporary postponement of the reverse split. Under the circumstances, the NYSE Amex exchange halted trading in the Company's common stock today, but indicated that trading will resume tomorrow (Wednesday, February 9) on a pre-split basis. The Company is working to complete the reverse split process and expects the reverse split to be effective in the near future.

Orsus Xelent Technologies anticipates sales for the year ended December 31, 2010 of approximately $25.1 million (unaudited), compared with $77.4 million in 2009. The Company said that preliminary unaudited results for the fourth quarter 2010 indicate sales in the period of $5.1 million, on which the Company achieved a small net profit of approximately $235,000. As a consequence, the Company anticipates trimming its net loss in 2010 to ($349,775) compared with a reported net loss in 2009 of approximately ($6.4 million). The Company expects to report audited results on March 31, 2011.

"In 2011 the Company will be more attuned to the needs of the carriers and cooperate with them on their needs for low-end devices. At the same time, we also will try to increase our sales of high-end devices to increase our profit margins. To support this, we plan to spend more on R&D to build devices on advanced platforms in line with anticipated industry trends, and modulate our business strategy as we are hopeful we will achieve better results during the year."

The Company reported that more than two-thirds of shareholders approved a proposal at the Annual Meeting of shareholders on December 30, 2010, to permit the Board of Directors to authorize a reverse split of the Company's common stock with a ratio of up to 30 to 1.

The Company said results in the recent quarter were affected by a decline in demand in the market for low-priced, non 3-G products, a major focus of the Company, as many of the larger telecom companies have focused on gaining market share in the rural areas of China. Additionally, the Company's distributors experienced a decline in the number of anticipated large orders from their major customers.

We have had only limited success based on the popularity in particular of our full-featured, modestly priced DX9188, which represented 62% of second quarter sales. We continue to look for an improvement in the market situation later this year, stimulated in particular by the introduction of 3-G phones. We are prepared to sell higher margin Company designed 3-G handsets as that market develops, and also see potential for the special application phones which were the Company's hallmark before the shakeup in the industry.

Unfortunately, we meanwhile continue to be severely squeezed by the situation with respect to our very large accounts receivable from our major distributor. While we rely on this distributor for sales of most of our products, and have a good working relationship in this regard, our limited cash necessitates financing to develop alternatives in what is still a difficult financing environment. With a belief that our distributor is emerging from its own difficulties engendered by the current marketplace, and with the backing of a Credit Guarantee Contract issued by a third party for long aged receivables should this not be the case, we continue to be optimistic that we can consummate a financeable transaction that will revitalize the Company. While these issues have created a difficult experience for the Company and its shareholders, we are resolute that a favorable outcome is within our sights, and are continuing to work very hard to achieve this as quickly as circumstances permit.

With our decision to write down bad debts, when this is taken away from accounts receivable, our financial position is more manageable. In January 2010, we signed a new accounts receivable guarantee contract. Over the course of the year, we anticipate building a stronger financial position through careful monitoring of receivables, possible financing to make targeted acquisitions and a continuing focus on cost management. We believe this will position us better to achieve our sales and earnings targets.

Mr. Liu told shareholders that in 2010 the Company is optimistic about a more "stabilized" environment which he believes will permit the Company to achieve steadily improving sales throughout the year. He also told shareholders that the Company believes "approximately 20% of its sales in 2010 will be of its own higher margin 3G products."